India’s GDP growth may surpass the latest Reserve Bank of India (RBI) projection for the first quarter of the current fiscal year (Q1 FY24), according to a new report by credit rating agency ICRA.
The RBI Monetary Policy Committee had left its growth forecast unchanged at 8.0% for the first quarter while ICRA is projecting a 8.5% growth in this period.
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ICRA attributed the faster growth to a supportive base and also a recovery in the services sector. Its chief economist Aditi Nayar said the second half of the fiscal is likely to witness headwinds, which will prove a dampener.
“Economic activity in Q1 FY2024 was boosted by a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in Government capital expenditure. Moreover, sharply lower prices of various commodities on a YoY basis supported margins in some sectors,” said Aditi Nayar, Chief Economist, Head-Research & Outreach, ICRA.
The report also states that the GVA (gross value added) growth is seen at 8.1% in Q1 FY2024 (+6.5% in Q4 FY2023), driven by the recovery in the services sector (+9.7% vs. +6.9%), even as improved margins are likely to have shielded the industry (+7.3% vs. +6.3%) from weak external demand, with a relatively lower growth foreseen in agriculture (+4.0% vs. +5.5%).
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Factors like a continued catch-up in services demand and improved investment activity, particularly a welcome front-loading in government capital expenditure, and sharply lower prices of various commodities which expanded margins in some sectors boosted growth in the June quarter, she said.
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“We are circumspect that erratic rainfall, narrowing differentials with year-ago commodity prices, and possible slowdown in momentum of Government capex as we approach the Parliamentary elections, could dampen GDP growth in H2 FY2024 below the MPC’s forecasts. Overall, we maintain our FY2024 GDP growth estimate at 6.0%, lower than the MPC’s projection of 6.5% for the fiscal,” said Nayar.